The first thing to know is that a segregated fund functions much like a mutual fund : the capital from all investors is pooled together and invested by a portfolio manager in various types of assets, such as stocks or bonds, with the goal of generating returns. This also reduces the financial risk for each investor.
By contrast, segregated funds have key advantages that set them apart from mutual funds such as rapid payment and guarantees that keep invested amounts safe during market downturns.
Lastly, know that only financial advisors working for insurance compagnies are authorized by the AMF to offer segregated funds.
Like any other investment funds, segregated funds are for any person who is 18 years old or older who’s looking to get guarantees on the money they invest and the investment gains they make. That being said, this product can be a particularly interesting option for:
The money is usually paid to the beneficiary within 10 business days after death. This spares them from having to use their personal savings to cover your financial commitments, and it also gives your loved ones the peace of mind they need to be able to focus on moving through the grieving process.
The capital invested and the investment gains are protected from market downturns, and you benefit from a protection against creditors, which is particularly interesting if you’re a business owner and/or professional who would want to limit the financial risks that come with running a business or practice.
Designating a beneficiary in the contract helps reduce estate settlement expenses, such as probate fees, as well as the professional fees of accountants, lawyers or executors. Depending on the province you live in, this could amount to thousands of dollars. The fees vary widely, from $0 in Quebec and Manitoba to as much as $14,000 or more in Ontario1.
Yes they do! Of course, their growth potential is directly linked to the performance of the investment funds in which you choose to invest in (and these choices should always be made in accordance with your investor profile).
In any case, there are a few golden rules to follow in order to optimize growth potential:
The fund goes through what is called a reset process, where its value is calculated and “frozen” at a specific time. This is typically done during a period of strong market performance in order to get the highest possible return.
Simply put, it means the payout amount is locked in at a certain level so it doesn’t drop when the contract ends or the holder passes away.2 This helps protect the fund’s investment gains when the economy and markets are performing less well. This advantage is especially valuable for people who want to leave a legacy that reflects the lifelong effort they put into saving their money.
The management fee breakdown is exactly the same as for mutual funds when it comes to management fees, advisory service and taxes. The only difference is that fees are added to cover the additional guarantees provided by segregated funds. This portion of the fee varies based on the type of fund and the series chosen (the series actually corresponds to the guarantee percentage, which is 75% or 100%).
Note: Once your assets invested with iA Financial Group reach the given threshold for eligibility, you can benefit from preferential pricing. Note that members of the same family and residing at the same address can combine their assets to contribute towards the asset threshold.
In conclusion, yes, segregated funds definitively are an interesting saving product, and choosing to invest in them can be an excellent way to diversify your portfolio while ensuring that the money you put in and the gains you make are well-protected.
Interested in investing in segregated funds? Talk to your financial advisor about it! If you don’t have one, click here !
iA Financial Group, leader in segregated funds in Canada